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Happy Days Are Here Again for Higher Ed Budgets

Flush with cash, states are able to offer colleges and universities more support than they have in decades. But campuses still face challenges from declining enrollments.

Tall clock tower at Michigan state university campus in East Lansing.
The clock tower on the Michigan State University campus in Lansing, Mich.
Gretchen Whitmer wants to give colleges and universities a lot more money. In her budget proposal, Michigan’s Democratic governor calls for raising higher education support by nearly $300 million. That’s a big turnaround from the type of higher ed cuts that have been typical in the state for years.

“The higher education community is over-the-top elated,” says Daniel Hurley, CEO of the Michigan Association of State Universities. “I don’t think we’ll ever see again a higher education budget proposal of this magnitude or significance.”

If colleges and universities have reason to celebrate in Lansing, they’re not alone. Across the country, higher education is seeing major proposed increases from states that are flush with cash at the moment. That’s on top of the $76 billion in federal money for campuses and students from the American Rescue Plan Act and other emergency measures enacted over the past two years.

In the current fiscal year, state support for higher education topped $100 billion for the first time, increasing by 8.5 percent, according to the State Higher Education Executive Officers Association (SHEEO). Six states — California, Colorado, Louisiana, Nevada, Oregon and Texas — increased their higher ed budgets by more than 10 percent. In his current budget, California Gov. Gavin Newsom proposes increasing funding for universities by 5 percent per year — for the next five years.

It’s a much rosier picture than university presidents could have predicted at the start of the pandemic, when campuses were closing and state revenues went into a tailspin. “We were expecting to see a trend like in 2001 and 2008, with higher ed budgets cut more than other expenses,” says Sophia Laderman, a senior policy analyst with SHEEO.

Instead, states can afford to be generous. Flush with cash from improved revenues and federal aid, states are able to think about cutting taxes while increasing spending on higher ed and other programs.

The good times won’t last forever. For higher ed in particular, there are concerns about an “enrollment cliff,” with the number of 17-year-olds dropping precipitously in 2025. “Beyond 2022, we do expect to see a pressure pipeline,” says Emily Wadhwani, higher education sector lead for Fitch Ratings. “The pressures from demographics and demand will continue.”

At the moment, however, colleges and universities are enjoying a rare moment of fiscal optimism. “If there was ever a moment, given the fiscal health of the state, to reinvest in a big way,” Hurley says, “now is the time.”

Long Period of Disinvestment

Whitmer’s higher education budget reflects the contingent nature of the state’s bounty. The governor wants to increase aid for each institution by $76.3 million, or 5 percent. The campuses would receive an additional 5 percent bump, but only as a one-time increase.

In addition, Whitmer wants to devote $141.5 million for information technology, equipment and maintenance. That line item — essentially, a deferred maintenance budget for higher ed — hasn’t seen a specific appropriation in Michigan for nearly a quarter of a century.

Heading into the pandemic, Michigan had cut aid to higher education on a per-student basis by 13 percent since 2008. That was far from the deepest cut among states. Collectively, between 2008 and 2019 states cut higher ed spending by $3.4 billion, or more than $1,000 per student on an inflation-adjusted basis.

Higher ed is among the easiest items for states to cut. There isn’t the same sort of mandated spending that’s prevalent in K-12 education or Medicaid, and legislators figure colleges and universities can raise their own revenues through tuition increases. That’s exactly what happened, with tuition increasing at public institutions by more than a third between the Great Recession and the pandemic.

Putting the Brakes on Tuition

With tuition and student debt still big concerns, governors want to see colleges and universities hold off on further increases. Under Whitmer’s proposal, universities in Michigan would be limited to tuition and fee increases of $722, or 5 percent, whichever is greater.

On Thursday, the University of Texas Board of Regents approved a $300 million endowment to support free tuition programs for low-income students at seven universities.

Kansas Gov. Laura Kelly wants to see tuition frozen entirely. To make this possible, Kelly seeks to increase higher ed spending by nearly $50 million. “Gov. Kelly actually delivered great news,” says Cheryl Harrison-Lee, who chairs the Kansas Board of Regents. “This budget increase would allow us not to have a tuition increase.”

Of course, Kelly’s proposal has to get through the Legislature. Like Whitmer, she’s a Democrat facing a Republican-controlled Legislature that will have different priorities. In making her pitch for more higher ed spending, Harrison-Lee talks not only about the ability to help students but to create a workforce that will help the state compete for business.

“We’ve also asked for additional funding for competitive grants for economic development opportunities,” she says. “We can create over 10,000 jobs and stimulate $6 billion in investment.”

It’s become common for universities to stress the economic value they bring to their states. But they also have to make a pitch to students. Adult and graduate enrollments have improved, but now colleges have to compete with the most robust job market in half a century. “We expect the international enrollment picture to stabilize, but it remains fragile, with competition from other countries and visa restrictions,” says Wadhwani, the Fitch Ratings senior director.

Getting full-time freshmen onto campus is a huge challenge. Undergraduate enrollment has declined 8 percent since 2019. The enrollment cliff may not end up hurting flagships too badly, but it has the potential to be devastating for regional campuses.

Most public institutions rely on state aid for about half their funding. In Michigan, it’s less than a quarter. Campus presidents not only hope that Whitmer’s proposal can survive mostly intact through the legislative process, but that it’s the beginning of a trend toward viewing higher ed as a top priority again.

“We’re excited about the governor’s budget, but it’s part of a longer-term discussion about where we want to be as a state,” Hurley says. “I think there’s understanding and buy-in from the legislative body that increasing educational attainment is the primary driver for top jobs and employers.”
Alan Greenblatt is the editor of Governing. He can be found on Twitter at @AlanGreenblatt.
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